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STATUTORY FINANCIAL INFORMATION
 12 Months Ended
Dec. 31, 2020
Insurance [Abstract]  
STATUTORY FINANCIAL INFORMATION LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
The following provides a reconciliation of the beginning and ending reserve balances for loss and LAE, net of reinsurance:
202020192018
(dollars in millions)
Gross loss and LAE reserves, January 1$140.7 $33.3 $1.6 
Reinsurance recoverable on unpaid losses(18.9)(11.4)(0.8)
Net loss and LAE reserves, January 1121.8 21.9 0.8 
Net incurred loss and LAE related to:
Current year341.9 312.6 43.7 
Prior years20.9 8.8 (0.2)
Total incurred362.8 321.4 43.5 
Net paid loss and LAE related to:
Current year216.3 194.6 22.0 
Prior years110.7 26.9 0.4 
Total paid327.0 221.5 22.4 
Net loss and LAE reserves, December 31157.6 121.8 21.9 
Plus reinsurance recoverable on unpaid losses79.6 18.9 11.4 
Gross loss and LAE reserves, December 31$237.2 $140.7 $33.3 
Incurred losses and LAE attributable to prior accident years was an increase of $20.9 million and $8.8 million during 2020 and 2019, respectively, and a decrease of $0.2 million during 2018.
The increase to held loss reserves of prior years in 2020 of approximately $20.9 million was primarily related to higher than estimated reported losses resulting from frequency and severity in excess of expectations for bodily injury claims as well as higher emergence of collision claims from accident years 2019 and prior, partially due to timing of reported claims. The year ended December 31, 2020 also included development of incurred losses related to accident years 2019 and prior as a result of a change in estimate. The adjustments recorded in the year ended
December 31, 2020 were necessary in order to effectuate management’s best estimate for determining the estimated ultimate cost of settling claims using our knowledge and experience about past and current events and developments.
The increase to held loss reserves of prior years in 2019 of approximately $8.8 million was primarily related to higher than estimated reported losses resulting from higher emergence on bodily injury, uninsured and under-insured bodily injury, and property damage coverages.
Reconciliation of incurred and paid losses by LAE development to gross loss and loss expense reserves are as follows:
20202019
(dollars in millions)
Losses—net of reinsurance$133.0 $106.6 
LAE—net of reinsurance24.6 15.2 
Reinsurance recoverables on unpaid losses79.6 18.9 
Total loss and LAE reserves—gross of reinsurance$237.2 $140.7 
The following table shows incurred and paid losses and allocated loss adjustment expenses, or ALAE, development by accident year for private passenger auto in aggregate, cumulative claim frequency is defined as the number of reported claims at the claim level which includes reported claims that do not result in a liability:
Incurred Losses and ALAE—Net of Reinsurance
Accident Year
2017 (unaudited)
2018 (unaudited)
2019 (unaudited)
2020IBNR
Reported Claims(1)
(dollars in millions)
2017$1.2 $1.1 $1.1 $1.1 $— 543
2018
42.3 48.3 49.6 0.5 18,081
2019
287.3 306.3 14.2 89,823
2020
295.9 50.0 113,248
Total$652.9 $64.7 221,695
Cumulative Paid Losses and ALAE—Net of Reinsurance
Accident Year
2017 (unaudited)
2018 (unaudited)
2019 (unaudited)
2020
(dollars in millions)
2017$0.6 $0.9 $1.0 $1.1 
2018
20.6 44.6 48.1 
2019
177.0 277.7 
2020
182.0 
Total$508.9 
Loss and ALAE reserves—net of reinsurance$144.0 
Unallocated LAE reserves13.6 
Ceded unpaid loss and LAE79.6 
Loss and LAE reserves—gross of reinsurance$237.2 
_______________
(1)Reported by claim event.
The following table sets forth the historical average annual percentage payout of incurred losses and ALAE (claims duration), net of reinsurance, as of December 31, 2020:
Year1234
Incremental Paid(1)
53.8 %36.2 %8.1 %1.9 %
_______________
(1)Supplemental information and unauditedSTATUTORY FINANCIAL INFORMATION
Root Insurance Company and Root Property & Casualty, or our insurance subsidiaries, are required to prepare statutory financial statements in conformity with the basis of accounting practices prescribed or permitted by the Ohio DOI and Delaware DOI, respectively. Ohio and Delaware have adopted the NAIC Accounting Practices and Procedures Manual as the basis of their statutory accounting practices. As of December 31, 2020, Root Property & Casualty maintained statutory capital and surplus of $16.3 million and had a statutory net loss of $25.5 million for the year ended December 31, 2020. Root Insurance Company maintained statutory capital and surplus and had statutory net loss as of and for the years ended December 31, 2020, 2019 and 2018 as follows:
As of and for the Years Ended December 31,
202020192018
(in millions)
Statutory capital and surplus$100.1 $152.3 $73.5 
Statutory net loss(123.8)(157.6)(58.3)
The payment of dividends by Root Insurance Company and Root Property & Casualty are subject to restrictions set forth in the insurance laws and regulations of the States of Ohio and Delaware, respectively, or the insurance laws. The insurance laws require domestic insurance companies to notify the supervisory superintendent, commissioner and/or director to seek prior regulatory approval to pay a dividend or distribute cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory-basis policyholders' surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer as of the prior December 31. During the years ended December 31, 2020, 2019 and 2018, we did not pay any dividends.
The insurance laws also require domestic insurers to seek prior regulatory approval for any dividend paid from other than earned surplus. Earned surplus is defined under the insurance laws as the amount equal to our unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses.
Additionally, following any dividend, an insurers policyholder surplus must be reasonable in relation to the insurer's outstanding liabilities and adequate for its financial needs. The NAIC Risk-Based Capital, or RBC, model law requires every insurer to calculate its total adjusted capital and RBC requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a company's total adjusted capital falling below established relationships to required RBC. The model includes components for asset risk, underwriting risk, credit risk and other factors. The State of Ohio and the State of Delaware impose minimum RBC requirements that are developed by the NAIC. The formulas in the model for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action. The statutory surplus for Root Insurance Company exceeded the minimum RBC requirements for the years ended December 31, 2020 and 2019. The statutory surplus for Root Property & Casualty exceeded the minimum RBC requirements for the year ended December 31, 2020.